INDUSTRY UPDATES ON 28TH FEB, 2013

INDUSTRY UPDATES 28.02.2013
Budget may not remove curbs on sugar industry



Even as the Economic Survey has pitched for decontrol of the sugar sector, there are indications that the decision may not be part of the Union Budget to be presented by Finance Minister P. Chidambaram on Thursday.

“Announcing the removal of levy and imposing an additional excise duty to enable the Government to finance the sugar purchases for the public distribution system as part of the Budget may not be politically expedient. It will give the Opposition just the right handle to dub the Budget as anti-people,” sources in the know said.

According to them, the decision to decontrol may be taken up separately by the Union Cabinet after the Budget, possibly next week.

The Finance Ministry has reportedly expressed concern over the potential rise in sugar prices if the release mechanism were to be scrapped and an additional excise duty is imposed on the sweetener.

Food Minister K.V. Thomas is expected to address the Finance Ministry’s concerns on the issue and consultations were likely to begin after the Budget.

The Survey pointed out that the Indian sugar sector suffered from “policy inconsistency and unpredictability”. The sugar industry in India is over-regulated and prone to cyclicality due to price interventions. Stating that a greater play of market forces would provide better prices and serve the interests of all stakeholders, the Survey suggested the “Government should come into picture only in situations where absolutely necessary”.

The export bans and controls could be replaced with small variable external tariffs to stabilise prices. “A stable, predictable and consistent policy reforms have to be brought about in a fiscally neutral manner and issues considered for implementation in a phased manner,” it said.

The Rangarajan Committee had recommended removal of levy sugar system and scrap the regulated release mechanism for the open market sale. It had also suggested phasing out cane reservation area and dispensing with minimum distance criteria between mills, stable trade policy, no quantitative or movement restrictions on by-products such as molasses and ethanol, besides dispensing with compulsory jute packing.



Steel oversupply seen for the next 2-3 years

Essar Steel’s Dilip Oommen says the oversupply is compounded by the fact that there is a big surge in imports




Dilip Oommen says steel prices will go up because of the cost pressure



Mumbai: Dilip Oommen, managing director and chief executive officer of Essar Steel India Pvt. Ltd, At the helm of Essar Steel, India’s fourth-largest steel maker by last fiscal year’s production, Oommen’s challenges are formidable, with an inventory overhang looming in another slowdown year. Plus, an onslaught of cheap imports is nibbling away the marketshare of domestic companies. He spoke in an interview about the outlook for the industry and other issues. Edited excerpts:

Analysts are forecasting steel overcapacity by 2014-15 in India.

It is true. For the next two-three years, there is bound to be an oversupply. This is compounded by the fact that there is a big surge in imports.

Inspite of the comprehensive economic partnership agreement (CEPA) and free-trade agreement (FTA) with countries, there has to be a safeguard duty of at least 15% on steel imports.

How do you see steel consumption picking up in the next year and the year after that?

For consumption to pick up, interest rates have to come down, the liquidity has to improve, the investment in infrastructure has to drastically go up. Let’s see what the budget has to offer, but one would expect a certain boost in the infrastructure industry.

Do the restrictions in Orissa on mining hinder operations in terms of availability of iron ore?

Fortunately not, because we are favourably located. But as we ramp up our production at the pellet plant in Orissa, yes, it can get to be a bottleneck. Fortunately, as I understand, a lot of stocks a lot of the mines are holding have been allowed by the government for sale.


Coal India invites bids for acquiring assets abroad


In order to tide over the fossil fuel shortages, the government is also proposing to import coal and pooling domestic and international prices. Photo: Getty Images



New Delhi: Coal India Ltd (CIL) on Wednesday invited bids from bankers and interested parties for acquiring assets abroad, a move that would help the world’s largest dry-fuel producer meet shortages as it battles problems in enhancing output.

“Coal India seeks expression of interest (EoI) from investment bankers, owners/owner’s representatives for acquisition of coal assets abroad,” CIL said.

The bids have been invited by Coal India Videsh, set up with the intent of enhancing the nation’s energy security.

Coal minister Sriprakash Jaiswal had said recently that acquisition of coal mines overseas should be done in an aggressive manner to meet the country’s energy requirements.

In order to tide over the fossil fuel shortages, the government is also proposing to import coal and pooling domestic and international prices.

Meanwhile, CIL has already started process for assessing the reserves of its mines in Mozambique and has already invited bids for taking up drilling at the blocks.

Two coal blocks—A1 and A2—at Motaize, in Tete Province of Mozambique, are spread over 200 sq km and their exploration may take over two years, as per CIL.


Nagarjuna Construction to cut exposure to power business


Y.D. Murthy, executive vice-president of finance at NCC.



Hyderabad: Nagarjuna Construction Co. Ltd (NCC) is in the process of reducing its exposure to the power business by selling stakes in these units.

The Hyderabad-based infrastructure company has three power assets that include two hydroelectric projects in Himachal Pradesh and Sikkim and one coal-based power project in Krishnapatnam, Andhra Pradesh.

The company has already signed a definitive agreement with Abu Dhabi National Energy Co. PJSC (TAQA), the government-controlled energy holding company of Abu Dhabi, to sell its entire stake in the special purpose vehicle (SPV), Himachal Sorang Power Pvt. Ltd, a consortium of NCC and IL&FS Engineering and Construction Co. Ltd.

Himachal Sorang Power is developing a 100 megawatt (MW) merchant power project on Sorang Khad river in Kinnaur district, Himachal Pradesh, at an estimated cost of Rs.600 crore. NCC owns a 67% stake in Himachal Sorang, while IL&FS owns the remaining 33%.

The company has invested Rs.127.7 crore as the equity component in the project, which has a concession to operate and manage the project for 40 years.

“We signed a definitive agreement. We need the approval of the Himachal Pradesh government to sell equity and normally they give (approval) six said months after the commercial operations date (COD),” Y.D. Murthy, executive vice-president of finance at NCC. “The COD is expected in April or May.”

Himachal Sorang has already transferred a 5% stake to TAQA and the rest will be transferred in nine months, NCC said. Murthy declined to disclose the financial details of the stake sale.





Iron ore to dive to USD 70 a tonne - UBS Analyst

Sydney based commodity analyst Mr Tom Price said that iron ore trading near 16 month highs may slump 54% to the lowest level since 2009 as China boosts production and global supply climbs. Rates may tumble to USD 70 a tonne in the 3 months ending September after trading between USD 130 and USD 160 through June.

Iron ore has surged 75% from a near 3 year low in September as China’s growth rebounded from a 7 quarter slowdown. That may prompt an increase in Chinese output and idled mines with capacity of 100 million tonne a year are set to return to the market from March according to Macquarie Group on February 22nd 2013. Global seaborne supplies will climb 9.1% this year

Mr Price said that “We expect a big correction in the third quarter. We see a big lift in supply.” Ore with 62% content delivered to the port of Tianjin in China cost USD 151.90 a dry tonne according to The Steel Index Ltd. Rates rose to USD 158.90 on February 20th the highest since October 2011.

While Price joins analysts from Westpac to Deutsche Bank in predicting cheaper prices in the second half his estimate is lower than most. Westpac senior economist Mr Justin Smirk and Bank of America expect USD 110 by yearend. Mr Price said that “Rates may jump above USD 160 in the short term amid lower supplies from India and as the cyclone season in Australia threatens shipments. March ore swaps rose 1.8% to USD 150.06 snapping 7 daily losses data from SGX AsiaClear show, as a severe tropical cyclone neared Port Hedland the world’s largest bulk export facility.”

Cotton exports may rise on low global supplies



A steep fall in global cotton production to its lowest level since 1993 may cause prices to shoot

up, which is likely to help India's cotton exports, sources said.



The Cotton Advisory Board (CAB) had revised the export forecast upward for 2012-13 to 8 million bales from 7 million bales, of which 2.7 million bales have already been shipped, exporters said.



Meanwhile, India, the world's second largest cotton supplier, exported a record 12.9 million bales in the marketing year through September 2012 when global prices hit record levels as top user China increased cotton imports.

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